2022 FRS102 reporting

The 31 March 2022 year end is approaching and, based at the time of writing, the FRS102 balance sheet position for housing associations with LGPS and SHPS exposure is likely to have improved for many since March 2021, but the Income Statement for next year is likely to have worsened.

However, results could be very different for individual employers depending on:

  • Asset allocations, for example those with a higher proportion in growth assets are likely to have fared better over the year to date.
  • Liability profile, for example those with a more mature participation (older membership) are more likely to be affected by short term inflation rises.

Financial markets are also currently very uncertain and positions could still change significantly before 31 March 2022.

Good governance on pensions assumption setting

The FRS102 position reported in year end accounts must be based on high quality corporate bond yields and long term inflation expectations at 31 March 2022, with no option to reference a different date.  

However, the choice of which particular corporate bond yield or market inflation indicator will be specific to an individual employer. A housing association should adopt assumptions which are reflective of its own population.

Adopting the “standard” assumptions provided by your LGPS Fund or SHPS may not be appropriate for your organisation.  In particular they may contain unnecessary prudence which is not in line with FRS102 requirements.  For example, mortality assumptions are often carried over from the latest funding valuation, which is known to include prudence.

Market conditions and increased auditor scrutiny mean that a housing association needs to be involved in the decision making and judgement required to set assumptions, accurately measure pension assets and allow for legal decisions such as McCloud, GMP equalisation and Goodwin. 

Movement in balance sheet and income statement to 31 March 2022

Note: this is based on conditions at the time of writing and may change by 31 March 2022

In 2021/22 so far we have seen corporate bond yields increase and, although not back to March 2020 levels, they remain higher than March 2021. Inflation expectations continue to rise over all terms and have offset the rise in bond yields.  

Liabilities and assets in a typical participation have broadly increased over the year to date by around 10%, although the position at year end will be very dependent on market movements to March 2022, exact asset and liability profile and the specific assumptions adopted by an organisation.  Next year’s income statement is likely to have worsened, especially for those still open to future accrual.

Accurate asset measurement

Housing associations may wish to plan for their final disclosures to be produced on the finalised asset valuations, meaning a default approach may not be efficient – in particular this will apply to LGPS Funds.

A change in funding methodology at the SHPS 2020 valuation has led to a relative shift in liabilities towards employers with an immature participation.  A housing association with an immature (mature) participation will see an increase (decrease) in its asset share at the 2022 year end with no associated increase (decrease) in FRS102 liabilities.

Actions for Housing Associations

Given these areas of judgement, it is important that you plan ahead and have the correct conversations with your actuaries and auditors.

As part of the management of operating costs, we are seeing an increasing focus on the pensions service cost for financial year 2022/23. 

If you would like to discuss any of these issues in relation to your arrangements, Isio are providing accounting support packages bespoke to your organisation. Please email the team at Isio.